lululemon athletica inc. (LULU): A Bull Case Theory

We came across a bullish thesis on lululemon athletica inc. on Sunrise Capital’s Substack. In this article, we will summarize the bulls’ thesis on LULU. lululemon athletica inc.'s share was trading at $169.13 as of October 14th. LULU’s trailing and forward P/E were 12.16 and 13.14 respectively according to Yahoo Finance.

Lululemon’s latest earnings report marked a stark departure from its usual guarded commentary, with CEO Calvin McDonald openly acknowledging management missteps that contributed to underperformance in North America. Comparable store sales declined by 4%, driven primarily by stagnation in the lounge and casual categories, where loyal high-value customers are delaying purchases due to a lack of newness, even as performance and technical wear continue to gain traction.

Inventory levels are elevated, suggesting potential markdowns, while de minimis and tariffs are expected to pressure gross margins by approximately 1.7%. The company also finally acknowledged competitive pressures from brands like Alo and Vuori, which the market perceives as steadily eroding lululemon’s market share. Despite these challenges, lululemon’s core brand equity remains intact, evidenced by continued market share gains, 1% growth in North America relative to a declining discretionary apparel sector, and strong international expansion.

The reported issues are largely structural and execution-related rather than fundamental, centering on the need for fresher product cycles in lounge and casual wear and mitigation of import-related margin impacts. Management has already outlined plans to accelerate new product introductions, targeting 35% of the assortment by Spring 2026, signaling proactive steps to address these weaknesses. The market’s reaction appears to be a knee-jerk response to short-term noise, overlooking the company’s underlying strengths, including top-tier gross and operating margins, robust free cash flow, and ongoing stock buybacks.

A CEO’s candid acknowledgment of challenges is interpreted here as a calculated strategic reset, akin to previous high-profile corporate turnarounds. Ultimately, lululemon’s investment thesis now hinges on execution risk: if management successfully implements its recovery plan, the company is well-positioned to regain momentum and capitalize on its enduring brand loyalty.

Previously we covered a bullish thesis on lululemon athletica inc. (LULU) by FeedbackAlarmed5045 in May 2025, which highlighted the company’s strong brand moat, premium pricing, expanding men’s apparel segment, international growth, and robust margins. The company's stock price has depreciated approximately by 43.2% since our coverage. The thesis still stands as LULU’s brand equity and strategic initiatives remain intact. Sunrise Capital shares a similar view but emphasizes execution risks and management’s strategic reset to accelerate new product introductions.

Lululemon athletica inc. is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 55 hedge fund portfolios held LULU at the end of the second quarter which was 48 in the previous quarter. While we acknowledge the potential of LULU as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

READ NEXT: 30 Stocks That Should Double in 3 Years and 11 Hidden AI Stocks to Buy NOW 

Disclosure: None.